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Fragment on business and social responsibility.

The dictum of Milton Friedman, to the effect that the only social responsibility of a business corporation is to enrich its shareholders, wants some serious thought. It would seem to rest on a foundation of legal positivism: the business corporation is an artifact of human law, dedicated to a single purpose. To assign new and competing purposes is to misunderstand the artifact. The business executive who operates on this misunderstanding in effect has committed fraud. He has diverted resources entrusted to him to illegitimate purposes.

The error in this formulation, as I see it, lies precisely in its foundation of legal positivism. Do we acknowledge that business activity is native to man, at least in the sense that it is prior to any particular arrangement established by positive law? If so, then I think we are perforce acknowledging that business is to some degree entangled with the ends of man as such. Striving for consistency, we should go on and say that, whatever the particulars of the positive law governing business in a given society, the human activity of business is a deeper matter of human flourishing and positive law may take a wide variety of forms in instantiating it. We might even say that business activity rightly understood partakes of the great charter delivered by God to man, to be fruitful, multiply and fill the earth. In this light no stricture of positive law or ideological abbreviation can reduce business to purely a matter of shareholder wealth. Our business corporation may be an artifact of positive law; but business as such is inextricably tied up in nature and destiny man.

Even if that ontological argument fails to satisfy, the inherent weakness of legal positivism is evident. It is doubtful, for instance, that defenders of Friedman would allow a simple revision in corporate law permitting social purposes in business governance to dispose of their argument. In other words their claims concerning the character of the business corporation go beyond the particulars of positive law.

Here we touch on a common vulnerability of libertarian thought: the allergy to metaphysics often masks strong metaphysical claims. The libertarian view of private enterprise rests on philosophical assertions about the nature of human beings and the nature of political society. Fair enough. The trouble begins with the reluctance of libertarians to integrate these assertions into a rational picture of reality. The claim that governments are forbidden to interfere in private enterprise except in the pursuit of a few expressly-limited purposes, is really a claim about nature of the creature called man and the societies he builds. To defend it one must repair to deeper arguments of teleology: who is man? What is his purpose? From what does political authority derive and what are its limits?

Put another way, the libertarian is often tempted to rely on certain very common sophistries to quarantine his favored field of economics from the wider realm of political philosophy and above all metaphysics. In fact there is no economy that is not also political economy, and neither politics nor metaphysics can be disposed of when answering such questions as, What is the social responsibility of a business corporation?

Comments (7)

"It would seem to rest on a foundation of legal positivism: the business corporation is an artifact of human law, dedicated to a single purpose."

Why would it seem that way? His arguments make no mention of legal positivism. His arguments rest on the basic non-consequentialist thought that if a party freely enters into an agreement with another for mutual benefit by promising to deliver a service, it would be wrong to stay in that partnership while continuing to draw a salary and refusing to provide that service. An employee promises to make money for the employer. Either do that or quit.

It's a pretty simple argument and there's not a whiff of legal positivism there. Isn't Friedman just Kant? Maybe you've read some Friedman I haven't, but the argument I've seen in Friedman is basically that with some extra stuff thrown in about how those who have the expertise that a company hires them for are not experts on social policy and will likely not improve things if they direct corporate resources to the public good without knowledge of how to do that or permission to do that with money that belongs to other people.

(By the way, it's nice to see a post that isn't filled with bigotry or sexism and isn't likely to encourage genocidal rants. Your posts are so sensible, Paul, I can't for the life of me understand why you choose to put them here.)

1. You don't have to incorporate to do business. The fact that many small businessmen find that in order to compete with the competition they have to become "Paul J. Cella, Inc." is proof that there are problems with our tax and corporate laws.

2. I think Milton Friedman is partly right. We ought to obey the law and limited liability corporations are creatures of and (in a sense) agents of the state. That's why I think corporate and tax law should be reformed so incorporation is no longer necessary in order to compete in ordinary business enterprises and the requirement should be restored that corporations demonstrate that they are acting in the public interest as a condition for getting their charters renewed.

3. Just because corporations are agents of the state (in addition to being profit-making machines for their stockholders) shouldn't mean they should be be mandated to be secularist. But the reason for that mandate is that secularism is the state religion. That's a more general issue than the issue of corporate ethics and economics per se.

4. The law should not be nearly so eager to limit liability. It is ordinarily unethical to limit liability. One of the biggest problems with our health care system is a vicious circle created by the availability of malpractice insurance--and "tort reform" addresses the symptoms not the problem. It is immoral to allow persons to insure themselves against malpractice or any kind of liability.

5. I must have A.D.D. Just ignore #4 in the preceding comment, except for the first sentence.

I had never thought about Friedman's brief for the sociopathic (fake, legal) person as a species of positivism. It has always seemed to me that these strong abjurations of corporate responsibility were grounded in reductive conceptions of human nature, according to which we are naught but utility maximizers, creating institutions (such as corporations) in order maximize subjective welfare functions, and in Mandeville-style Fables of the Bees, according to which the concinnity of private vices generates public (aggregate) good. Lurking back of these conceptions is one of the grand conceits of the modern age, that of the scientific modeling of human things, the attempt to reduce human things to certain 'laws of motion', having regularity and effect independent of human intentions; in a sense, this has all been rooted in envy - envy of the prestige of the sciences, generally, in an empirical age, and earlier in the modern age, envy of the edifice of Newtonian physics. (Philosophers have long suffered from physics envy; unfortunately, as our political philosophers are the poor sort known as 'economists', they are still in thrall to this vice, what with their ever more recondite and useless mathematizations.) The implication of such conceits has been that, as these 'laws of motion' operate of themselves, coordinating the billions of decisions of millions of persons, it is interference with their logic and operations that is to be feared. The 'laws of motion' of themselves aim at optimality; any attempt to mitigate them, or to deflect them, cannot but fall short of optimality. Markets are efficient. Corporations best serve the good by abjuring the good. QED.

There are any number of grounds upon which one might contest such reductive conceptions of human nature. Good philosophy has long repudiated such rubbish. Empirical work in psychology, and even in newer forms of economics, is giving us (back) a more whole conception of human nature. Recent history demonstrates that law, regulation (or lack thereof), and corporate practice predicated upon such reductive conceptions generates crises. And so on, and so forth.

Still, the illusions persist, and people use and abuse them, for various purposes both political and psychological. It is useful to advert to the broad period of history which witnessed the birth of these notions, of 'economic man', and of the alchemical conversion of vice into virtue. Not only was this a period in which science was struggling to differentiate itself from pseudo-science, such as alchemy - meaning that the idea of the conversion of base and vile things into good things was in the air, so to speak - but it was the epoch in which modern political economy was developing, and in many cases suppressing its premodern rivals. A (pseudo) scientific warrant for contingent facts of political economy was very, very useful in those times.

Thus, in a roundabout way, we come back to positivism - the scientistic side of positivism. And so, Friedman's sociopathic fictive persons are artifacts of positivism: of the pretensions of social philosophers, including economists, to scientific simplicity, precision, and clarity that they cannot attain, all in the service of interests. How base.

My sympathy or lack of sympathy for Friedman's statement always depends on what I take him to mean by "social responsibility." If by "social responsibility" one means, for example, a responsibility not to be a jerk to your employees, then F. is wrong to say a business doesn't have such responsibilities. Example: I know of one college that hired a person for a new faculty position. During the succeeding _couple of months_ they decided they were having financial problems and decided to fire some faculty. (Christian college, so no tenure even among those already present.) Inter alia, they "fired" the guy they had just _hired_, before he ever _got_ there. Meanwhile, he had quit another job, because this one was apparently better. So he was left hanging in the air with _no_ job. That's just wrong. Every single administrator should have taken a cut in pay before letting that happen. I do not believe that that one person's salary for one year (perhaps they would have had to give him only one year) was going to pull the entire college under. I especially don't believe this given that now, just a couple of years later, they are starting (this won't surprise anyone) a major _building campaign_. It makes me steam a bit, really. You don't do that to people on supposed grounds of financial exigency, and it looks even worse when somehow you can find the money shortly thereafter to build big new buildings.

So I'm anti-Friedman if he's denying that kind of "social responsibility."

If, on the other hand, Friedman is denying that businesses have a responsibility to donate to the United Way, to develop "green technology" (and tell everyone they are doing so, too), to give X percent "tithe" "back to the community," and on and on (as Target store does and is still hated by anti-business types, so they might as well not bother), then I'm with him. Businesses can do that stuff or not; it's up to them. They don't have any sort of intrinsic responsibility to do so.

Another example I'd acknowledge of "social irresponsibility"--aka, being a jerk:

I used to work in the office of a factory. The guys got injured in the factory from time to time. Almost any time one of the guys claimed an on-the-job injury, the boss and the plant manager would conspire in a campaign of employee harassment to try to make him quit. It was very overt and obvious, at least if you worked in the office. I knew what their plans were and everything. They would deliberately isolate a claimant from the other employees, scheduling his work and breaks so he would have trouble talking to anyone else. They would even tell him to come and work a non-existent third shift at midnight, when of course he would show up and find the place locked and no way to get in. They had all kinds of tricks.

That's wrong. A business owner has a responsibility not to behave like that.

Would anyone call behaving better than that being "socially responsible"? I'm probably just allergic to the word "social," but I'd tend to find more direct terms. I wonder what Friedman would say about such cases as the examples I've given here.

One interesting thing is that a corporation's officers, executives, and managers, even before they are agents of the corporation, are fundamentally human beings with personal relationships to other human beings. If the idea of a corporation is to swallow up, or even eradicate the personal relationship between supervisor and supervisee, and pretend that the only relationship that the supervisor may act upon is that of supervision of a "unit of labor", then that idea of a corporation is wholly anti-Christian, anti-human, anti-person, and anti-society. Ideally, all of the actions the supervisor takes with regard to the supervised are generated out of love: even if he has to fire the guy, he should be acting out of love for the many people who are being affected by this guy's damaging behavior. As Lydia's examples suggest, corporate "policy" that tells a boss to act in ways that are simply incompatible with love are evil policies and should not be considered a functional way to operate the enterprise. This applies more often with making a higher good be subservient to a lower good, which is what happened in her examples.

I hate to say it, but it is my belief that far too often, perhaps even most of the time, religious organizations are willing to operate under basically unjust behavior toward employees. A single friend of mine was a full-time teacher for a long-established Catholic high-school, lived with 2 friends in a tiny rented house, and could not make ends meet but by working weekends in a pizza shop. That's unjust wages.

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